Voluntary Self-Disclosures of Export Violations: Understanding the Consequences

The realm of international trade and commerce operates under a complicated system of export control regimes that are designed to protect national security, curb the proliferation of sensitive technologies, and ensure strict adherence to economic and trade sanctions. In the United States, violating these export controls can result in severe penalties and legal repercussions for companies involved in export activities. This article delves into the significance of voluntary self-disclosures when a company becomes aware of export control law violations. These voluntary self-disclosures can significantly reduce the penalties imposed by various enforcement agencies and demonstrate a company’s commitment to compliance by opening a dialogue with the agency.

Disclosures of EAR Violations 

Export controls for products subject to the Commerce Control List (CCL) and related export restrictions are governed by the Export Administration Regulations and are administered and enforced by the Department of Commerce’s Bureau of Industry and Security (BIS). An example of an export violation is the export of technology related to neutron generator systems provided for under Export Control Classification Number (ECCN) 3E001 of the CCL. As of January 3, 2023, the civil monetary penalty for EAR violations is $353,534 per violation. The filing of a voluntary self-disclosure under 15 C.F.R. § 764.5 is considered a mitigating factor in enforcement actions by the BIS. Based on the Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases, Supplement 1 of 15 C.F.R. Part 766, in the event of a self-disclosure, the maximum civil monetary penalty for EAR violations cannot exceed 50% of the prescribed maximum civil monetary penalty at the time of violation. More importantly, when an exporter fails to file a voluntary-self disclosure regarding a violation of the EAR, BIS considers this an aggravating factor to raise the monetary penalties assessed in an enforcement action. 

Disclosures of FTR Violations 

Reporting of export information, specifically through Electronic Export Information (EEI) that is declared to the government through the Automated Export System (AES), is governed by the Foreign Trade Regulations (FTR) and administered and enforced by the Department of Commerce’s Census Bureau. Like the self-disclosure under the EAR, the voluntary self-disclosure of violations is considered a mitigating factor in administrative actions. A typical violation of the FTR would include the improper declaration of the U.S. Principal Party in Interest (USPPI). As of January 3, 2023, the civil monetary penalty for FTR violations is $16,438 per violation. When an export violates multiple export control regimes, such as the EAR, the exporter should submit a voluntary-self disclosure to all agencies where a disclosure would be appropriate. 

Disclosures of ITAR Violations 

Exports of items on the U.S. Munitions List are governed by the International Traffic in Arms Regulations (ITAR) and are administered and enforced by the Department of State’s Directorate of Defense Trade Controls (DDTC). An example of an export violation would be the export of technical data related to spacecraft heat shields or heat sinks specially designed for atmospheric entry or re-entry found under USML Category XV(f). As of January 11, 2023, the civil monetary penalty for ITAR violations can be the greater of $1,200,000 or the amount that is twice the value of the transaction that is the basis of the violation with respect to which the penalty is imposed per violation. The DDTC may consider a voluntary self-disclosure as a mitigating factor in an enforcement action and will consider the failure to file a disclosure as an adverse factor to heighten the penalty amount. 

Disclosure of OFAC Violations

While not exclusively involving exports, violations of U.S. economic and trade sanctions enforced and administered by the Department of Treasury’s Office of Foreign Asset Controls (OFAC) may involve transactions that have occurred as part of export activities of a company. An example of a violation of U.S. sanctions would be the export of technical know-how for architecture of a science laboratory to Russia and providing financial and management services to a Russian company. As of January 23, 2023, the civil monetary penalty for OFAC violations can be $356,579 or twice the amount of the underlying transaction per violation. However, if a voluntary self-disclosure is submitted to OFAC prior to investigation, the maximum penalties can be reduced to one half of the transaction value (capped at the lesser of $178,290 or half statutory maximum) per violation.  

Disclosure of Willful Export Violations to DOJ

In rarer circumstances where companies are faced with willful violations of export controls or sanctions laws, voluntary disclosures can be submitted to the Department of Justice’s National Security Division (NSD). Voluntary disclosures submitted to the NSD prior to enforcement actions are initiated are mitigating factors when the DOJ determines the action and penalty involved. 

Beware of Other Export Violations 

It is important to remember that particular export activities could involve the violation of a number of other export control regimes. To name a few, these include the U.S. Fish and Wildlife Service’s regulation of the export of wildlife and endangered / threatened species, the Department of Energy’s regulation of nuclear technology, the Nuclear Regulatory Commission’s regulation of nuclear material and equipment, the Food and Drug Administration’s regulation of drugs and medicine, and the Bureau of Alcohol, Tobacco, Firearms and Explosives. When filing a disclosure with one agency, companies should consider whether their export activities have also triggered a violation with any other federal or state authority.

Recommendations

Navigating the landscape of international trade and commerce demands a keen understanding of the multifaceted export control regimes in place to safeguard national interests. Violating these controls can have severe consequences for companies engaged in export activities, including substantial penalties and legal ramifications. Voluntary self-disclosures serve as important mechanisms for companies to address and rectify export control violations. By initiating such disclosures, companies can potentially mitigate the penalties imposed by enforcement agencies, demonstrating their commitment to compliance and willingness to engage in open dialogue with the relevant authorities. Moreover, it is vital for companies to be aware that export activities may be subject to additional regulatory regimes beyond those explicitly related to export controls, and careful consideration should be given to ensure full compliance with all applicable federal and state authorities. In a dynamic global trade environment, proactive compliance rather than reactionary behavior to export control laws remains a paramount responsibility for companies conducting export activities.